Millennium, biotech stocks stumble

After strong first half, second half opens inauspiciously

By

TedGriffith

BOSTON (CBS.MW) -- Biotechnology stocks began the second half of the year on a downbeat note Tuesday, with shares of Millennium Pharmaceuticals among the notable decliners as investors reacted to terms of a marketing alliance with Johnson & Johnson.

The Amex Biotechnology Index
BTK, -0.14%
lost 1.1 percent to 426.93, and the Nasdaq Biotechnology Index
NBI, -0.37%
declined 0.5 percent to 668.68. Both indexes had been off more sharply earlier in the afternoon, but pared their losses as the broader market indexes turned positive. See full story.

Biotech stocks surged through the first half of the year. A string of Food and Drug Administration approvals for new biotech drugs as well as encouraging news about experimental cancer therapies fueled the gains.

In the first six months of 2003, the Amex Biotechnology Index climbed 33 percent while its Nasdaq counterpart rocketed 37 percent.

Investors are now wondering where biotech stocks, a notoriously volatile sector, are headed, and some analysts have cautioned that there's a risk of a pullback following the big run-up.

Analyst Mark Monane at Needham & Co. noted that the summer can be a period of lackluster performance for biotech stocks because there aren't many medical and investment conferences, which biotech firms use to highlight their progress on disease therapies.

But Monane said biotech stocks might get a lift this summer from clinical trial results due out from several biotech firms, including Genta
GNTA
and Esperion
ESPR, +0.46%

"In general, biotech stocks cool down in the summer," Monane said. "We'll have to see if that happens this summer."

Tuesday highlights

Late Monday, Cambridge, Mass.-based Millennium and J&J announced a marketing and development partnership for Velcade, the biotech firm's new cancer therapy. The deal applies to commercial rights for Velcade outside of the United States.

Johnson & Johnson
JNJ, +1.46%
a component of the Dow Industrials, moved up 72 cents to $52.42.

Cory Kasimov at Ryan Beck & Co. said Millennium investors were disappointed with the "relatively modest" $15 million upfront licensing payment that's part of the deal.

But the analyst said he sees long-term benefits for Millennium in partnering with the health-care-products giant. Kasimov estimated the total value of the deal for Millennium could reach $750 million plus royalties on sales of the anti-cancer drug.

Millennium's stock was among the leaders in the first-half rally, buoyed by the Food and Drug Administration's approval of Velcade. The stock was up 98 percent through June 30.

In other biotech news, Genzyme
GENZ
said it completed a plan to eliminate tracking stocks for its two small units, Genzyme Biosurgery and Genzyme Molecular Oncology. Shareholders in those units got stock in Genzyme General, the main division.

From now on, Genzyme will have one stock traded under the "GENZ" ticker.

Shares of Cambridge, Mass.-based Genzyme slipped 44 cents to $41.42.

In the pharmaceutical sector, stocks were modestly higher.

Shares of Pfizer
PFE, +1.54%
gained 38 cents to $34.53. Pfizer said it's considering selling a diagnostics business acquired as part of the buyout of drugmaker Pharmacia.

Headquartered in Sweden, the Pharmacia Diagnostics business had 2002 sales of about $220 million, according to New York-based Pfizer, the world's biggest pharmaceutical company.

The Amex Pharmaceutical Index
$DRG
added 0.5 percent to 330.28. In the first half, the index rose 10 percent.

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